KEHL AM RHEIN, Germany, Feb. 24 (UPI) -- German energy giant E.ON has entered a bidding war for Spanish competitor Endesa to become the world's biggest private gas and electricity provider.
Duesseldorf-based E.ON offered as much as 29.1 billion euros ($34.7 billion) in cash to take over Endesa, Spain's largest electricity company.
The combination would create the world's leading power and gas company, serving more than 50 million customers in more than 30 countries, E.ON said.
The bid is no less than spectacular: Taking into account all of Endesa's existing liabilities, the total transaction volume amounts to roughly $66 billion. It's the biggest offer a German firm has ever made for a foreign company.
"The combination of E.ON and Endesa will create a leading competitive player with operations in all key European countries," said Wulf H. Bernotat, E.ON's chief executive officer. It represents an important step toward creating a single European energy market."
He added Endesa would remain intact. With 70,000 employees and yearly sales of some $58 billion, E.ON is Germany's biggest company. Apart from Germany, E.ON has customers all over mainland Europe, in the United Kingdom and in the United States.
Analysts in Germany have praised the bid.
"Endesa is active in markets that all have higher growth potential than the German market," said Stephan Wulf, energy analyst at German private bank Sal. Oppenheim, based in Cologne.
Besides Spain, Endesa operates in Italy, France and South America, where roughly a quarter of sales are generated.
"Especially the Italian market is very attractive because of a higher level of prices and lower capacities in electricity generation," Wulf said.
Endesa has yearly sales of nearly $22 billion, most of it in Spain and Portugal.
Per-Ola Hellgren, energy analyst at the Mainz-based Rheinland-Palatinate State Bank, said E.ON could easily pay the price tag, which may not be as high as anyone thinks, he added.
"The price is based on the share value of Endesa in September. Since then, the market has grown by as much as 20 percent."
But E.ON is not the only firm interested in Endesa.
Since September 2005, Spanish Gas Natural has attempted a hostile takeover. After its first offer of roughly $26 billion was denied, it was reported the firm would meet E.ON's $35 billion offer, paying half of it in cash and the rest in shares, according to Spanish newspaper El Periódico.
Spain has been wary of E.ON's plans, with Madrid considering blocking the merger. It previously owned a "golden share" in Endesa, which allows the government to veto any sale of more than 10 percent. Last November, Spain agreed to give up its veto rights in Endesa, telecom firm Telefonica, oil and gas group Repsol and Iberia airlines, but the country would rather have the firm remain in Spanish hands.
On Wednesday, Spanish Prime Minister Jose Luis Rodriguez Zapatero said he would not make use of the veto, after Neelie Kroes, the European Union's head of competition policy, warned such a move would break EU law. But Kroes is also wary about the merger as it would continue the tendency for fewer companies to dominate a larger market share. Since Europe's energy market was liberalized in 1996 and 1998, several mergers took place.
E.ON itself is a product of that strategy, when in 2001 VEBA and VIAG merged. The German market is dominated by four large companies: E.ON, RWE -- Europe's third-largest company by sales -- EnBW and Vattenfall Europe.
E.ON's bid for Endesa's markets would boost the company far beyond its competitors, but at this juncture the deal remains uncertain.
"Under normal circumstances, E.ON's bid is better," Hellgren said. "But you can't rule out that Endesa is under pressure from the Spanish government to accept a nominally equal bid from Gas Natural."
Hellgren added E.ON could easily boost its own offer by 10 or 15 percent.
"And at some point Gas Natural's resources will be exhausted."
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